The human immunodeficiency virus type 1 (HIV-1) matrix (MA) domain is involved in both early and late events of the viral life cycle. Simultaneous mutation of critical serine residues in MA has been shown previously to dramatically reduce phosphorylation of MA. However, the role of phosphorylation in viral replication remains unclear. Viruses harboring serine to alanine substitutions at positions 9, 67, 72, and 77 are severely impaired in their ability to infect target cells. In addition, the serine mutant viruses are defective in their ability to fuse with target cell membranes. Interestingly, both the fusion defect and the infectivity defect can be rescued by truncation of the long cytoplasmic tail of gp41 envelope protein (gp41CT). Sucrose density gradient analysis also reveals that these mutant viruses have reduced levels of gp120 envelope protein incorporated into the virions as compared to wild type virus. Truncation of the gp41CT rescues the envelope incorporation defect. Here we propose a model in which mutation of specific serine residues prevents MA interaction with lipid rafts during HIV-1 assembly and thereby impairs recruitment of envelope to the sites of viral budding.